TABLE OF CONTENTS
CHAPTER
ONE
1.0
INTRODUCTION
1
1.1
BACKGROUND
OF THE STUDY 1
1.2
STATEMENT
OF THE PROBLEM 4
1.3
PURPOSE
OF STUDY 5
1.4
RESEARCH
QUESTIONS 6
1.5
STATEMENT
OF RESEARCH HYPOTHESIS 7
1.6
SCOPE
AND LIMITATION OF THE STUDY 8
1.7
SIGNIFICANCE
OF STUDY 9
1.8
DEFINITIONS
OF TERMS 11
REFERENCES 14
CHAPTER
TWO
2.0
REVIEW
OF LITERATURES 15
2.1 INTRODUCTION 15
2.2
HISTORICAL
BACKGROUND 15
2.3
MODEL
AND THEORIES RELEVANT TO THE RESEARCH
2.4
CURRENT
REVIEW 18
2.5
SOME
LITERATURE REVIEW ON INTERNAL
CONTROL SYSTEM
2.6 SUMMARY 23
CHAPTER
THREE
3.0
RESEARCH
METHODOLOGY 27
3.1 INTRODUCTION 27
3.2
RESTATEMENT
OF THE RESEARCH QUESTION 27
3.3
RESEARCH
DESIGN 27
3.4
RESEARCH
POPULATION 29
3.5
SAMPLING
METHODS AND PROCEDURES 29
3.6
VALIDITY
AND RELIABILITY OF RESEARCH INSTRUMENT 29
3.7
ADMINISTRATION
DATA COLLECTION SCHEDULE 29
3.8
PROCEDURES
FOR PROCESSING AND ANALYSIS COLLECTED DATA 30
3.9
LIMITATION
OFMETHODOLOGY 31
3.10 SUMMARY OF CHATER THREE 31
CHAPTER FOUR
4.0
PRESENTATION
AND ANALYSIS OF DATA 32
4.1 INTRODUCTION 32
4.2 TESTING
OF THE HYPOTHESIS 42
CHAPTER FIVE
5.0
SUMMARY,
RECOMMENDATION AND CONCLUSION 45
5.1 SUMMARY OF FINDINGS 45
5.2
RECOMMENDATION
47
5.3
CONCLUSION
48
BIBLIOGRAPHY 50
QUESTIONNAIRES 53
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND
OF THE STUDY
It is interesting to note that
“Audit” originated from the Latin word “Audire” which means “To Hear” because
in ancient time, the owner of a business used to hear a report made by the
Auditor about the book keeping and financial records of hours business. This
was because the primitive ways of keeping financial records which inducted
making marks on ward, keeping figures off hand without any documentation and
back of mechanical aids for calculation, had a lot of problems associated with it.
The rudimentary form of checking records
of financial transaction could be traced back to the 17th century
when civilization came to stage where people began to come on formal business
transactions. But such checking was configured mainly to the public account
because private audit in the early stages of civilization are rare.
Auditing, as it exists today, developed
quite late because the development of accounting was slow as compared to
economic theory. The eventual
development of auditing was based on a strong determination to conquer problems
associated with early beginning of business transactions and to provide an
independent and competent report on the state of affairs of the business to
their owners.
In modern times, audits have been
affected the needed to encourage public investment by providing an environment
for ensuring that investor found are put into proper use.
Philosophy of auditing put more input on
it that the thinking behind auditing principally arose from the management and
the consequential need to safeguard the interests of the owners who in all but
the smallest of business were not involved in the day-today decisions made by
the management.
Owing to the enlargement of size and
complexity of business enterprise today, the concept and scope of auditing have
changed. A comprehensive definition of auditing system given by Robert .E.
Schlessor as quoted by Jadish Dakash in his book “Auditing principles, practice
and problems” (1990:8) say Auditing is a
system examination of financial statements, records and related operations to
determine and herences to generally accepted accounting
principles management policies stated
requirement.
Another definition which is widely
accepted given by chartered Accountants of England says.
Auditing is an independent examination
and investigation of books, records and vouchers so as to enable the Auditor to
report whether they have been properly drawn up, so as to show a true and fair
view of the profit and loss and balance sheet and of the state of affairs of
the business accordance with the best information and explanation given to the
Auditor.
In these definitions, emphases were laid
Auditing being related to operations and how far they adhere to management
policies on stated requirements. In other words, we find out that there is need
to introduce an effective control system a lack of which can head to business
failure also resulting to other multiple problems.
What then is this internal control?
Internal control system is defined by explain institute as:- Those control, not
only internal check and internal audit but the whole system of controls,
financial and otherwise established by
management in order to carry on the business of an organization in an orderly
manner, safeguard it’s assets and secure
as far as possible the accuracy and
reliability of it’s records. It
may therefore be said that internal or control is an umbrella beneath which are
included financial controls, internal check, internal audit and non-financial
controls.
The individual components are known as
“Control” or “Internal Control” Millichamp .A. U. (1990:97) in his
instructional manual for accounting students also defined internal control as
related to the definition given by English institute.
Also, it was stated in paragraph five of
the Auditor’s operational standard requires that for an auditor to place
reliance on any internal control, he should ascertain and evaluate those
controls and perform compliance test on the control. We therefore see that to
have a sound control system, it would be worthwhile for the organization and
the possibility of business failure will be minute.
1.2 STATEMENT OF PROBLEM
With reference to what was
mentioned in the introduction that business failure could result from
ineffectiveness of internal control system are, the research work therefore
will look into ineffective of internal control system in the banking industry
today, this posses as a problem because it brings so many associated problems which could be
detrimental to a business for instance,
deterioration of working capital, high debt equity ratio. Sales decline
profit decline, high labour turnover, low capacity utilization, low quality
services and finally fraud of which could be either sales fraud purchases,
wages of petty cash fraud.
1.3 PURPOSE OF THE STUDY
The purpose of the study is to
critically look at the problems at hand (business failure) the associated
problem it brings and interrelationship between these variables
and how one leads to the other or it’s effect etc. And to provide
recommendation for solving the problem.
DETERIORATION OF WORKING CAPITAL
The amount for running of the day –to
day business if there is uncontrolled wastages, writing off too many debts etc.
High dept equity-the ratio of outside
investor to shareholders. It is importation that a business is geared, but when
the gearing ratio becomes too high. There would be a problem of insufficient
profit to pay dividend after the deduction of increasing debenture, interest
interference of debenture holders in the affairs of a company in respect of
non-payment.
FRAUD:-
Irregularities involving the use of
deposits to obtain an illegal
or unjust advantage:- This could either be cash or sales fraud, these types
of fraud relate closely because before a cash fraud could occur a sales must have occurred.
Purchase fraud could be by misuse of
order forms, creation of non-existing supplies, presenting two cheques for
signature with the same supporting documents.
WAGES FRAUD
This could occur by including during
names on payrolls, including ex-employee on the payroll or overcashing gross
and net columns in the wages sheet. We therefore, see that control is very
important for the solving of these various interlocking problems.
1.4 RESEARCH QUESTIONS
In order to achieve the aims and
objective of a typical project, questions have to be asked and answers to be
provided for them.
Hence, the questions of this research
are:-
(a) What are
the effects of internal control in the banking industry?
(b) Is the
internal control system in place in the banking industry adequate? If not, can it be improved?
(c) Can
effective control system help to reduce business failure
and other related problems?
(d)
What type of
internal control system is being practised by the banking industry?
1.5 STATEMENT OF RESEARCH HYPOTHESIS
Research hypothesis means an idea or
assumption in mind, which is yet to be verified. It is noteworthy to state that
the hypothesis is derived from the combination of the problem detected and the
subsequent research questions highlighted above. Thus, the following hypothesis has been
formulated and to be tested in this research work in order to draw a logical
conclusion.
NULL HYPOTHEIS (Ho)
There is no effect on internal control
system in the banking industry.
ALTERNATIVE HYPOTHESIS (HI)
There is an effect on internal
control system in the banking industry.
NULL HYPOTHESIS (Ho)
There is no adequacy in the internal
control system in the banking industry.
ALTERNATIVE HYPOTHESIS (HI)
There is an adequacy is internal control
system in the banking industry.
NULL HYPOTHESIS (HO)
Effects of internal controls cannot help
reduce business failure and other related problems.
ALTERNATIVE HYPITHESIS (HI)
Effect of internal control can help to
reduce business failure and other related problems.
NULL HYPOTHESIS (HO)
Effective internal control is not
practiced by the banking industry.
ALTERNATIVE HYPOTHESIS (HI)
Efficient internal control is practiced
by the banking industry.
1.6 SCOPE AND LIMITATION OF THE STUDY
The nature of this study entails the
ascertainment of the effectiveness of internal control system in the banking
industry. The internal control system being a very large topic. It could therefore, be said that it would be
difficult to look all department of internal control in an organisation. As a
result we will limits the research to accuracy and authorization of
operations with respect to cheques, cash receipts, wages salaries, petty cash and measuring the effectiveness in the banking industry.
Personal interviews and well structure
questionnaires will be employed
appropriately, also text books, journals annual report shall be
consulted.
It is not worthy to state that to a
large extent this research work will be limited to situations happening at WEMA
BANK PLC. A good research requires a lot of work but there are constraints that
may likely hinder the researcher from carrying out a successful research work
e.g.
A - Time constraints
B - Financial statements
C - Data constraints etc.
1.7 SIGNIFICANCE OF STUDY
In the financial services sectors such
as banking, insurance, building societies, consumer credit, purchase business
leasing, factoring business venture etc. bank represents probably the most
important financial sector. This is not just
in terms of turnovers profit and employment of labour, but also it’s paramount
impact on the other sphere of the economy. Any problem in the banking system
would invariably have strong effect on the economy and that is why this
research work tries to study the internal control in the banking sector with
respect to WEMA BANK PLC and see how it’s effectiveness would be used to
prevent business failure.
These work will serve as a basis of
broadening the researcher’s knowledge on internal control and it’s users. To
customers and investors, they would be confidence that controls in place an be
relied upon fore safe guarding of their deposit. Management in the other hand will be able to
reduce losses and improve on internal control system.
Finally, the academic world will use
this work as a basics for further study.
BACKGROUND OF THE COMPANY (WEMA
BANK PLC)
1. Head Office: Idema Tower, 57 Marina,
PMB Tinubu Lagos.
2. Legal Form: The bank was
incorporated as a private limited liability company on May 2nd, 1945
and was later converted to a public company in April 1987. The Bank’s shares
which are currently quoted on the Nigeria Stock Exchange were first listed in
February 13th 1991, the bank
was issued a universal banking license
by CBN on February 5th 2001.
3. Principal Activity: The bank is
principally engaged in the business of banking. The services provided by the
bank include retail banking, granting of loans and advances, money market
activities and foreign exchange operations.
4. End of Accounting year: 31st March
5. Number of Employees: 1824
6. Number of Branches: 116
7. Capital structure:-
(a) Authorised: N4,000,000,000
(b) Paid up: N1,555,460,414
8. Analysis of Shareholdings
Odu’a Investment co-limited 40%
Other Nigerian Shareholders 60%
Total 100%
Note: Wema Bank was formerly called Agbonmagbe bank until 1969 when the name was changed.
1.8 DEFINITION OF TERMS
1. AUDIT: In modern sense, an audit is
a process carried out by suitable qualified auditor”) whereby the accounts of
business enterprise, includes limited companies, charities, trust, and
professional forms are subjected to scruiting to form an opinion as to their accuracy,
truth and fairness. This opinion is
embodied in an “Audit report” addressed to these interested parties who
commissioned the audit, or to whom the Auditors are responsible under statutes.
2. Audit Test: Tests carried out in the process of Auditing to determine the trueness and fairness of the
transaction involved and also verify the
interest figure.
3. Audit Evidence: This is all information obtained by the Auditor
during the audit work and on which he bases his opinion on the financial statement.
Sources of Audit evidence are internal and external sources.
4. Compliance Test: These are those tests, which seek to provide audit
evidence that internal control procedures are being applied as prescribed.
5. Effectiveness: This is the degree to which pre-determined
objectives of taught are met.
6. Enquiry: Seeking revelation information from knowledgeable persons inside or outside
the enterprises whether formally or informally.
7. Computation: Checking the arithmetical accuracy of the accounting record or seeking independent
calculations.
8. Internal Audit: This is an independent appraisal functions with in
an organisation for the review of system and the quality of performance as a
service to the organisation. It objectively examines adequacy and reports on
the adequacy of internal control as a contribution to the proper economic,
efficient and effective use of resources.
9. Internal Check: This is an aspect of internal control which is
exclusively concerned with the
prevention and early detection of errors and fraud and this involves the arrangement of book keeping
and other clerical duties ins such a
way as to ensure.
a. That no
single task is executed from it’s beginning to it’s conclusion by only one
persons and
b. That the work of each work engaged upon
task is subject to an independent check in the source of another duty.
10. Internal control questionnaires: These
are lists of questions designed to get specific information about a particular
items, financial or otherwise with regard to internal control of an
organisation.
11. Internal control evaluation questionnaires: These are list of questions designed to assessing
whether specific errors are possible than with establishing whether certain
desirable controls are present.
12. Organisation chart: This is a
pictoral/diagram of levels of authority and responsibility within a company.
13. Segregation
of duty: This means an adequate
division of responsibilities and authority such that no one person is
responsible for the recording and processing of a complete transaction.
14. Substantive tests: These are those tests of transactions and balanced
and other procedures such as analytical reviews which seek to provide evidence
as to he completeness, accuracy and validity of information in the accounting
record or in the financial statements.
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